Climate Risk Exposure, Climate Policy Uncertainty, and Corporate Environmental Performance: Evidence from China

This paper asks whether corporate climate risk exposure (CRE) is associated with stronger environmental performance, and whether regional climate policy uncertainty (CCPU) weakens that association. Using panel data on Chinese A-share listed firms from 2016 to 2024, we find that CRE is positively associated with firms’ environmental scores, while the interaction between CRE and CCPU is significantly negative. The result is robust to alternative CRE measures, winsorization, exclusion of abnormal listing-status firms, and propensity-score matching. It also holds when CCPU is instrumented by cold extreme weather and when CRE is instrumented by the average disclosure of same-industry peers. The evidence is strongest for the Huazheng environmental score; broader ESG and alternative environmental measures provide more limited support, so we do not read the finding as a general ESG-wide effect. The attenuation is concentrated in firms with more room to adjust: smaller, low-leverage, non-state-owned, non-heavy-polluting, less profitable, and lower-performing firms, and firms whose CEO lacks an academic background. On candidate pathways, a direct cost-of-debt test finds no financing mediation. Green innovation is the only candidate response margin consistent with the proposed mechanism, although the analysis does not establish formal mediation. Climate risk raises short-cycle utility-model patent applications rather than substantive invention, and policy uncertainty erodes this application-stage response. Overall, climate risk can induce environmental improvement, but policy uncertainty limits how far climate-related pressure is translated into realized environmental outcomes.